Europe naphtha crack spread softens further on weaker Asia market

12 June 2012 12:11[Source: ICIS news]

LONDON (ICIS)--The European naphtha crack spread has fallen further into negative territory because of a weaker Asian market reducing opportunities to send surplus volumes east, a source said on Tuesday.

At 09.45 GMT, the July crack spread was at minus $14.40/bbl. August Brent crude oil was at $97.30/bbl and the naphtha cargo range assessed at $731-739/tonne CIF (cost, insurance and freight) NWE (northwest Europe).

At 15.30 GMT on 11 June, the crack spread was at minus $13.70/bbl. August Brent was at $97.99/bbl and the naphtha range assessed at $743-751/tonne CIF NWE.

“The east is weaker,” a trader said, when asked the reason for the softer crack spread.

ICIS reported on Tuesday that Asia’s naphtha crack spread has also softened further because of an oversupply and shrinking demand for petrochemicals.

At the close of Tuesday’s trade in Asia, the crack spread between second-half July open-spec naphtha and July Brent crude futures fell to $12.45/tonne from $17.63/tonne on 8 June.

“Petchems in not in a good shape, that is clear,” the trader continued. “Both sides [Asia and Europe] are not too supportive. Macroeconomics are not good.”

Asian market weakness is unwelcome news for the oversupplied European market. The European naphtha crack spread has remained in negative territory since January 2011 due to poor demand and an often-oversupplied market.

During recent weeks the crack spread has weakened further as demand has remained muted and volumes have built. Relieving the European oversupply depends greatly on sending volumes east.

When asked whether there might be any opportunity to move European volumes west, the trader said: “There’s not much need of naphtha over there [the US] at this stage. In my view it’s a non market for now.”

“Naphtha for the US is mainly for gasoline,” the source added. “And now they have [shale] gas... Nothing or very little goes in petchems.”

When asked about the outlook for the European market, the trader replied: “I have no idea. It’s very unclear. But naphtha is kind of always there, so will have to move in one way or another.”